Utility Week

Uberflip 24 01 14

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Comment Chief executive's view Paul Massara, Npower 80% of bills is out of our hands Energy Explained aims to shine a light on facts about the industry, such as that suppliers control less than 20 per cent of costs in bills – so why are they blamed for 100 per cent of any price rise? N ew Year is a time for change and resolutions – and at Npower we've made our own commitment to make things better for our customers and put right the system issues we've had in recent months. We've launched a new, clearer bill, cut the number of tariffs we offer, and promised to make energy fairer, simpler and easier to understand for all our customers through our new Standards of Conduct. There's a lot we're doing to improve the customer experience – and a lot more we can do. But to me, the most important reason for making these changes is to help improve confidence in the energy industry as a whole. That industry is made up of not just the socalled big six, but more than 140 companies involved in the production, generation, trading, delivery and supply of energy in the UK, all of whom influence the price of the energy we all use. Around 80 of these companies are engaged in trading in the UK energy market, and around 20 companies generate the electricity we all sell. Confidence in what we do for our customers is crucial – but one of the biggest barriers to restoring that confidence is the confusion surrounding the industry, fuelled by the myriad of opinions that sometimes cloud the facts about energy in the UK. So while suppliers such as Npower are making bills and tariffs simpler, misconceptions around trading, generation and pricing still exist. It's not enough to claim that energy is complex. It's no more complex than many other industries. We have to make it simple – to explain it, and get inside the cost of energy to make it clearer to everyone involved. This week, I launched the second of Npower's Energy Explained reports – a series of six-monthly reports that sets out the facts behind different aspects of the energy industry. The first report shared the main drivers behind energy bills now and in the future, and how this cost of energy is changing. The second builds on this, explaining how and why energy is traded, power stations are financed, and how energy is priced. At times in recent months, the facts have been in short supply – particularly amid 6 | 24th - 30th January 2014 | UTILITY WEEK rumours of broken competition, profiteer- on the technology involved, we look to make ing and rigged wholesale markets. As the around 7-12 per cent return on our investcost of living debate continues, it is easy for ment. That level reflects the billions of politicians from all parties to make headline- pounds required upfront, as well as the risk grabbing statements that don't always stand that policy and markets could well affect the the test of closer scrutiny. financial success of the plant over its 20-plus So the aim of Energy Explained is to pre- years of operation. It's a significant risk – sent the facts, not opinions. It's time for facts and as tweaking of energy policy is becomand perspective. For example, popular opin- ing the norm, power station profits become ion would lead you to believe that Britain's more unpredictable over time. In the first energy wholesale markets have just six partic- nine months of 2013, our generation plant in ipants, yet nothing could be further from the the UK made a loss of £59 million. truth. In fact, many of the 80+ organisations The simple fact is this: there are no hidthat actively trade energy in Britain den profits, and pretending othare larger than the so-called big six. erwise only serves to undermine The idea that international banks or confidence in a market that is major multinational oil companies delivering jobs, investment and would choose to operate in a market energy 24/7 to homes and busiwhere six energy supply companies nesses across the UK. could self-supply or manipulate the Another fact often omitted market is unlikely at best. from the energy debate is that the Energy Explained also shows actual unit price of energy in the how the make-up of a domestic bill UK is cheaper than in most other is changing as the impact of gov- The actual European countries. In fact, we've ernment policy to deliver cleaner unit price got the cheapest gas in Europe energy and keep the lights on is behind Luxembourg and Belgium, of energy passed on to consumers through and electricity that's 10 per cent the bill. I've said before that an in the UK is cheaper than the EU average, energy supplier controls less than cheaper than according to think-tank VaasaETT. 20 per cent of costs in customers' in most other A Moody's report on energy affordbills, but we are blamed for 100 per ability last November showed that European cent of those costs and 100 per cent even though energy consumption countries of any price rise. in the UK is higher than in GerOur analysis of the data shows many, the average UK household an increase in policy costs on the bill of still pays less than in Germany, because of 272 per cent between 2007 and 2020, even if our cheaper unit prices. A further myth is that energy demand falls in line with government people don't switch, yet in 2013 more than 3.5 expectations. This is just one example of million customers switched suppliers. how responsibility for energy costs sits out2013 was a particularly difficult year for our side of my company's control. industry. I hope that 2014 is a year in which The report also shines a light on power all suppliers work harder to be more transparstation profits. I want to address the idea ent and are even more determined to make that if suppliers are only making a reason- energy easier to understand. But those efforts able profit margin in their retail business will be thwarted if the energy debate continthen they must be hiding it somewhere else ues in its current vein. To restore confidence (we aim to make 5 per cent in our supply in the industry – to encourage take-up of business for the financial risks we must man- energy-efficiency measures and get consumage – and it's often less than that). There are ers switched on to treating energy waste the 20-plus power generators operating in this same way as wasting money in other areas of country, and Npower is just one. Depending life – we've got to concentrate on the facts.

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